“Sprawl Subsidy”: Facts & Fiction

“All Calgarians currently subsidize development of new suburban communities by approximately $4,800 per home. In 2012, this subsidy cost Calgarians approximately $33,000,000…That subsidy has led to nearly $1.5 Billion in debt to The City of Calgary.”

– Naheed Nenshi

What?! If that’s true homeowners should be storming the polls on Election Day to stop it. If it’s not true, it is the kind of poisonous campaign rhetoric that may create expensive unintended consequences for taxpayers.

So is it true? Well, kind of – sort of, but not really.

Let’s be clear what we’re talking about. Suburban developers bear the costs of all infrastructure inside the boundaries of their development: roads, sidewalks, sewers, pipes, the whole thing. On subdivision, they also give up land to The City for municipal and environmental reserves.

What the mayor is referring to is offsite costs – downstream impacts of new development on City infrastructure (interchanges, water and sewer trunk lines, and alike). When it comes to water and sewer offsite costs, the mayor’s math says suburban growth only pays half of its true cost, which translates into a “subsidy” of about $4,000 per new house. And it’s this “sprawl subsidy” that has left us with $1.5 Billion in utility debt.

Is it true? When you consider what a utility is and where the money’s been spent in the last 10 years, not really. For instance, $450 Million for the Pine Creek Sewage Treatment Plant, and another $400 Million for upgrades to Glenmore and Bearspaw Water Treatment Plants.

Are they attributable to suburban growth? Upgrades were necessary to address growth, no doubt, but putting aside the costs of a few trunk lines and lifting stations, a sewage treatment plant services toilets from beltline condos the same way it does those from Cranston houses. Lifecycle needs and new provincial standards were also behind much of these costs.

Looking down the list of utility projects, there are many that have nothing to do with suburban growth at all. For instance, the Shepard Constructed Wetlands – that’s $60 Million for a wetland to filter storm water from established communities.

So why didn’t established communities pay a levy for that? Aren’t all ratepayers subsidizing a project that benefits only a portion?

Short answer: Yes – that’s what a utility does. It subsidizes the cost of expensive infrastructure over an extended period of time across the entire rate base. To suggest that suburban development is solely responsible for Calgary’s utility debt is misleading and unfair.

Some may also argue its unfair to burden new suburban development with 100% of these costs, given the utility model, and the fact that redevelopments in established communities aren’t treated in the same fashion.

It’s a complicated equation to bring fairness and balance in determining these costs.

The Municipal Government Act, Section 648, is the source of the logic saying new development is underpaying for utilities. This section of the Act allows municipalities to impose charges on developers for transportation, water and sewer offsite costs. So if the municipality is allowed to charge 100% for utility offsites but is only charging 50%, ratepayers must be “subsidizing” 50% according to this view.

You know what’s not included in Section 648 of the MGA? Levies for community infrastructure like rec centres and emergency services. And yet, suburban developers will pay fees to The City equal to about $4,400 per house for these things – according to the mayor’s math, that’s about 85% of the City’s actual costs.

There are two problems with this perspective.

First, it assumes a certain pattern of growth. Population growth and geography determine demand for recreation and emergency facilities. As the City moves toward more densification of established neighborhoods, and actually puts limits on the expansion of new suburbs, a legitimate argument can be made that the burden borne by new greenfield development should be smaller and smaller over time. That is to say, redevelopment should be paying a growing portion of these costs (although the City doesn’t really have a levies formula in place for this today).

The second problem is a legal one. As per the MGA, developers are under no obligation to pay community and recreation levies – they are in place through a negotiated agreement. Viewed from a purely legal lens, there’s actually cross-subsidization occurring in Calgary’s suburban development: The City may subsidize utility costs, but new development subsidizes the City for things like rec centres.

For many in the development industry, community and recreation levies are a “goodwill” tax they have agreed to pay to make their business run smoothly at City Hall.

Given the development business seems to run less and less smoothly at City Hall these days, and the almost jihadist fervor of some campaign rhetoric lately, goodwill may be in short supply when the current developer agreement with The City ends in 2015.

And that should be a concern for all taxpayers.

Here’s a troubling scenario. Council’s agrees with the mayor’s push to “eliminate the subsidy” on utility levies, adding roughly another $4041 per house to City coffers. The development industry says “fine, we’re not going to pay the community and recreation levy anymore” – that’s $4,370 less per house. City Council could try withholding an agreement under such terms, but if the industry is agreeing to pay 100% of those things they are legally obligated to, a court may see things differently.

Determining who pays for growth, how and when is not an exact science – there is no magic formula. Claiming a “sprawl subsidy” during an election might be good politics, but at some point mayor and council will need to tone down the rhetoric, and use persuasion and a more respectful approach with the industry they’re asking to pay the bills.

Marc Henry is president of ThinkHQ Public Affairs Inc., an Alberta-based government and public relations strategy and public opinion research firm.